U.S. yield curve inversion not a recession signal: former U.S. Fed chief

Former Chair of Federal Reserve of the United States Janet Yellen said in Hong Kong Monday that the U.S. yield curve inversion did not signal a recession, but there might be a rate cut.

Speaking at an investment conference in Hong Kong on Monday, Yellen said: "In contrast to times past, there's a tendency now for the yield curve to be very flat, because long term rates have two components.

"One is an average of about the ten year yield. But on average, the short rates that market participants expect to prevail over the next ten years," she said.

The second component is a term or risk premium. Yellen said that for much of the U.S. history, risk premium had been positive and significant.

"But it is now estimated that term premium and longer term rates is zero or negative, which means when short rates are at a neutral level or in line with level expected to be normal over the longer run, you're going to have an absolutely flat yield curve."

"It's not going to be upwards sloping. And that's not something you've seen in the United States for most of history. And that means it's very easy to be really occur to invert," she added.

"It might signal that the Fed would, at some point, need to cut rates, but it certainly does not signal that this is a set of developments that would necessarily cause a recession," Yellen said.

The yield curve inverted last Friday for the first time since mid-2007. yield curve inversion is considered an important indicator of a recession coming in the near future.